Getting 8 out of 10 operations right is not enough: what matters is the risk taken when the trader makes a mistake
For Estéfano Santos, from X-Trader, the difference between betting and operating as a profession lies in the risk management of losses, not the success rate.
BY THE X-TRADER NEWS NEWSROOM · REPORTING FROM X-TRADER TV · 2 MIN
Getting eight out of ten operations right does not guarantee a profit in the financial market. The assessment is by Estéfano Santos, founder of X-Trader and Nasdaq Futures trader for over 10 years, in a video published on the X-Trader TV channel. According to him, what decides the result is what happens when the investor makes a mistake.
To illustrate the argument, Estéfano describes two trader profiles. The first gets eight out of 10 operations right, but when he takes a loss, he doesn't accept it: he increases his hand, tries to recover the loss and turns a small mistake into a huge loss.
The second gets only five out of 10 right. When he's wrong, he leaves the operation, respects the risk and follows the plan. In Estéfano's reading, the first wants to prove that he is right, while the second wants to stay in the game.
Control the risk, not the success
Estéfano states that, after more than 10 years of trading, he learned that the trader does not control how many times he will be right, but he can control how much he is willing to risk when he is wrong. In the video description, he adds that being wrong is part of the market and that knowing how much you can lose in these cases is part of professionalism.
The channel also maintains that risk management should not only exist during periods of gain. According to the publication, it needs to remain valid precisely when the market goes against the investor, as a single loss out of control can compromise the results of several winning operations.
What does this mean for the investor
Estéfano's message is a warning against the simplified reading that a high success rate is synonymous with good performance. In his opinion, the number of successes tells only part of the story, and ignoring the size of the losses can nullify what was achieved.
He establishes a distinction between those who treat trading as a bet and those who treat it as a profession. For Estéfano, method, management and discipline are the elements that separate the two groups, and perhaps this is one of the biggest differences between them.
The channel ends the content by reinforcing that it does not promise quick riches nor does it work with a crystal ball. The message, according to Estéfano, is that staying in the market depends less on predicting the next movement and more on defining, before the operation, how much you accept to lose.
Automatically translated from Portuguese.
